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AHRI:ASSIST FAQs: Redundancy

An overview of some key legal requirements for redundancy.

Q. How do I choose which employees to make redundant?

Firstly, roles become redundant, not employees. Employees may be displaced by the redundancy of their role. Those employees will either be retrained, redeployed or retrenched (i.e. their employment is terminated as a consequence of redundancy).

If a role becomes redundant because an employer no longer requires the functions or tasks undertaken in the role, or a decision is made to allocate that work to other roles, then the employee occupying the role will have to either be retrained, redeployed or retrenched.

If the reduction of workload in a particular area means fewer people are required to perform a particular role, then the issue of selection of employees becomes relevant. The use of ‘LIFO’ (last in first out) is legitimate, as are many other methods. The selection criteria must not be discriminatory or contrary to the Fair Work Act general protections provisions.

Q. I am selling my business and the purchasers aren’t keeping on my existing employees. Who has to pay for redundancy?

This is generally determined between the parties in the sale of business transaction, with an adjustment to the purchase price to reflect such liability (if any at all).

If the business is sold as an ‘asset’ or ‘trade’ sale, such that there is a change in employer, then you will become liable for satisfying all termination entitlements including redundancy pay (if any – an employer with fewer than 15 employees isn’t liable for making redundancy payments under the Fair Work Act’s National Employment Standards). If the business is sold as a ‘share’ sale, in that the purchaser is buying your shares or interests in the employing entity, then the new owner will inherit all employment liabilities, including making redundancy payments to retrenched employees.

The requirements would be the same if you were selling your business and the purchasers were keeping on some employees, but not others.

Q. My modern award only says I need to consult if there is a major workplace change. Is making one employee redundant a major workplace change? Can’t I just consult with that one employee at the termination meeting?

It is arguable that a one-off redundancy is not an event requiring consultation under the standard award consultation clause. In Lambert v ZTE (Australia) Pty Ltd [2010] FWA 7846, Commissioner Roe ruled that a decision to make redundant a senior full-time employee, who had been engaged for more than three years in a firm with fewer than 50 employees, and in a workgroup or department of seven employees, constituted a major change within the meaning of the award clause, given the effect on the remaining employees.

Moreover, to establish that it wouldn’t be reasonable to redeploy the employee, there will usually need to be some discussion with them about that matter before the decision is taken to retrench them. The consultation doesn’t necessarily require two meetings. The employee can be given information in writing and invited to raise relevant matters on or before a specified meeting.

Q. What are alternative solutions to making people redundant?

If the consideration of redundancy arises from a need to reduce labour costs, you could negotiate changes to employment (transfer from full-time to part-time, or temporary reductions in wages). You can invite (or, if reasonable, require) employees to take annual leave or long service leave. You could also create options for employees to take up unpaid leave or secondments.

Q. What other benefits are payable on termination?

You must pay for unused annual leave and long service leave accrued until termination. Under the Fair Work Act, annual leave loading must be paid on annual leave payments (if the employee would have received that on leave taken). Any unpaid expense claims will need to be reimbursed in accordance with the employer’s policy. In some cases, pro rata bonuses will be payable.

If you’re grappling with an HR issue, AHRI:ASSIST is an HR guidance and support centre, with information sheets, checklists, guidelines, templates and much more. 

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